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Steinhoff class action likely to be lengthly, complicated affair

Shareholders will get what’s left after all creditors have been paid, says Charl Bester from Kruger International.

NOMPU SIZIBA: Steinhoff shareholders are in the process of being briefed as to the way forward in terms of joining forces with European investors who, like them, lost money when Steinhoff hit the wall. Following revelations of irregular accounting behaviour in December last year, the stock has lost value to the tune of as much as 90%. It was a market-darling stock and therefore shook the portfolios of many an investor. The lawyers pursuing a global coordinated action are of the view that this will be a better strategy for shareholders than investors individually trying to lay their claims – an expensive exercise which may lead to them getting nothing.

To speak further on this story I am joined on the line by Charl Bester, a director at Kruger International. Charl, the South African investors are having various meetings with their local and their European attorneys with a view to having a globally coordinated legal approach to Steinhoff. One of the things that they have argued is that it’s going to be more productive, or investors are more likely to reap dividends from going the global-approach route than individual investors gunning for Steinhoff. Would you agree with that?

CHARL BESTER: I think it certainly makes sense. First of all, all investors – big, small, institutional, mom, pop – who had money in Steinhoff could bear it together. They will save costs. I think, although it is going to be a long and messy court case, it will be much shorter than having individual court cases in South Africa and in Europe, and even in other places in the world. So I think it definitely makes sense to appoint somebody to be the point man for all the investors, because I think all the investors want to know what happened, what their representation is, and whether there is any money due to them, or whether they could claim any money back. It is going to be a very, very complicated and very lengthy court case either way.

NOMPU SIZIBA: Charl, even if it is found that the investors are entitled to something, they are going to be queueing in a very long queue, because creditors get first preference. Right?

CHARL BESTER: Of course. For shareholders that’s the problem. You get what’s left after all the creditors have been paid. It might not be very much because, if you look where the Steinhoff share is trading, that complication is telling us there are not a lot of assets left that will be available to distribute among the shareholders.

NOMPU SIZIBA: What’s been happening with Steinhoff’s asset base? I see that recently their Mattress Firm business in the United States had to file for bankruptcy, and it begs the question why people didn’t sufficiently interrogate their move to buy that business, for which they paid a significant premium at the time.

CHARL BESTER: At the time it was a funny transaction, because they paid almost a 1500% premium to the prevailing share price. And if you looked at their competitors, they were really struggling. So it was a struggling industry to being with, and Steinhoff paid top dollar. We were very critical about their Conforama transaction, yet maybe they saw something that we couldn’t, where they might save a lot of money in the supply chain and turn that business around. But, with the benefit of hindsight, I think shareholders should ask a lot more questions.

At the time Mr Wiese, the biggest shareholder, was actually putting more money in to finance these things. He thought it a big share, so he put in money, [thinking] it should be, in the long term, beneficial for the minority shareholders as well.

NOMPU SIZIBA: So what word are we getting as to the PwC report, which is supposed to come out at the end of the year sometime? When are we expecting that to come out and, when it does happen, where to next?

CHARL BESTER: They said they fully expect that PwC report to be available and published by the end of 2018. They also said that the financial statements for 2017 will be published – or that is the intention – by December 2018, and then those for 2018 in January 2019. So I think we are still on track hopefully to receive those within the next two months. They will tell us a bit more about what happened – because at the moment it seems that nobody knows what went wrong, not even the people in management and senior managers who were intimately involved in all these transactions. They are all just shrugging their shoulders and saying: “We don’t know what went wrong. We left everything with them.”

NOMPU SIZIBA: And on top of that the rumour mill has been running wild. A couple of months ago there were those articles coming out that Markus Jooste had given some of his friends a tip-off to sell their shares before this thing happened. So it does make one wonder what went down.

CHARL BESTER: Sure. And, if that’s true, and we hope that it will be proved, that is insider trading. Not even those who disclose insider information, but the people who acted on what they must have known then was insider knowledge would be in trouble.

NOMPU SIZIBA: So, as a manager of client funds, what lessons have you drawn from the Steinhoff saga?

CHARL BESTER: We have these icons in the business world, and we just look up to them and kind of believe everything they say. In the Steinhoff case, in particular, the directors’ reputation was build up over many, many years in big businesses, and when you see those guys on the board you think, alright, they are looking after me as a small shareholder and they are independent. They should be asking the right questions. That clearly didn’t happen. So I think we should be more critical when we look at companies, and we should ask more questions. But if there is fraud involved, it’s very, very difficult to see that. I think this was a clear case of that.

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shareholders have a better chance of getting something out if Steinhoff recovers. They should rather sue all else except the company, that is CEO, Chair, Board, Auditors.

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